Tesla sees brisk China sales after settling name dispute

Updated 5:47 pm, Thursday, August 7, 2014

Tesla, which began selling the Model S in China in April, has settled with a businessman who challenged its rights to the name.

Tesla, which began selling the Model S in China in April, has settled with a businessman who challenged its rights to the name.

Photo: Wang Zhao, AFP/Getty Images

Tesla sees brisk China sales after settling name dispute

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Elon Musk, Tesla Motors' chief executive officer, has big hopes for China, a country that should be a natural for his electronic cars. The world's largest auto market has notoriously awful smog problems, and the Chinese government has made the pollution fight one of its top priorities.

Last month, China's State Council agreed to exempt electric cars (as well as plug-in hybrids and fuel-cell vehicles) from the 10 percent tax normally assessed on new autos. And the government said electric cars would make up at least 30 percent of its vehicle purchases by 2016.

That creates opportunities for Tesla. China is "genuinely committed to electric cars," Musk said during a call with analysts last week. "It's not just about favoring local manufacturers."

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There's been one problem: While Tesla Motors started Chinese deliveries of the Model S in April, the Palo Alto automaker was proceeding without certainty that it had rights to its name in the country.

A Chinese businessman running a company that makes skin care products had registered the rights to the name before Musk and his team did.

Other companies, including Apple, have had to contend with similar nuisances in China. Despite the government's penchant for going after multinationals such as Microsoft and Mercedes-Benz for alleged antimonopoly violations, China has generally allowed foreign companies to triumph over local squatters on their names.

Trademark settlement

A court in Beijing announced on its official microblog this week that Tesla had reached a deal with Zhan Baosheng, who had sued the American company over the trademark dispute. Zhan agreed to waive his claim to the Tesla name, and Musk's company in turn agreed to withdraw its claim for compensation from Zhan.

Welcoming the agreement, Tesla diplomatically praised Chinese authorities "for laying the groundwork" for a deal. The company now "looks forward to continuing to grow its business in China and to expanding the impact of electric vehicles in this very important market."

But Tesla won't be expanding too quickly.

"We can drive demand up at will, but if we drive it up too much, then people get upset with us, because they wait too long for the car," Musk said on the July 31 call with analysts. "When I was visiting China, the only unhappiness I saw was because customers were upset about waiting too long for their car. We'd better not stoke demand in that situation."

Not that China has been a red-hot market for electric cars so far. For all the official enthusiasm for green vehicles, sales have been lackluster.

The government had a target of half a million alternative-energy vehicles by next year, but in a report published last month, JPMorgan analysts said volume would reach only 261,000.

Charging standards

In part that's because the government has been slow to create the infrastructure for the industry to take off. China has only recently implemented standards for the charging of electric vehicles.

"The challenge was that most standards weren't defined until about a month ago," Musk told analysts. "So it's a little tricky to adhere to something that has not yet definitely been announced."

Now that China has announced its standards, added Tesla Chief Technology Officer Jeffrey Straubel, meeting them will be "relatively simple."

So the agreement that allows Tesla to use its name and trademark comes at the right time. Even though the Chinese market has been underwhelming so far, demand for alternative-energy vehicles should start to pick up soon. JPMorgan predicts that China will reach its half-million target in 2016, and top 1.1 million vehicles by 2020.